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The IRS issued a bulletin on Sept 3rd saying that, effective January 1, 2011, over-the-counter drugs will not be covered under a Flexible Spending Account (FSA), Health Savings Account (HSA) or Medical Savings Account (MSA) unless you get a prescription.

Luckily for me, eyeglasses and contact lenses will still be covered, so I can still get the tax break of paying for my glasses & contact lenses with pre-tax dollars via my HSA account.

A few of the people playing the drugstore game are disappointed by this change.  Essentially, in the past, you could use your FSA debit card to pay for any OTC medicine or other FSE-eligible items that were part of your order, and you could get a tax break by using your pre-tax dollars.  Also, as one SD’er points out, if you call CVS and give them your extracare card number, they will send you a list of all OTC FSA-eligible purchases made with that card for whatever time period you specify. It will list the price you paid, with no deductions for coupons or ECB’s — so you can get reimbursed full price for items you got for free after rebate or free after ECB. 

If you played the drugstore game REALLY heavily, like I used to, then you could essentially max out your FSA at the beginning of the year, and not have to worry about extra money at the end of the year, because you could just withdraw any leftover at the end of the year using all your CVS or Wags receipts!  What a sneaky way of getting all your pre-tax money back in your pocket!

However, 2010 will be the last year you can use this perk.

This is just one more reason to choose an HSA over an FSA. The use-it-or-lose-it rule of the FSA is just a pain, and now it will be even more difficult to spend any excess FSA money you have left at the end of the year.

One Response to “FSA, HSA & MSA: OTC Drug Coverage to End January 1, 2011”

  1. kc says:

    I think they are lowering the amount you can fund into your account too.. which is a bummer for us. We blow through all 5k with just medical copays, and RX costs (glasses, contacts too)generally…. I don’t even both with the OTC stuff.

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